There are numerous books, videos, courses and articles that mention anecdotes of domain names that sold quickly for large amounts, and then say this book will teach you how to easily flip domain names for profit. Most members of our community know that is a misrepresentation; most domain names will not sell for a long time, if ever.
The main point of this article is in the title: domain name investing is not fast, easy, or sure. It is important to have a realistic outlook if you are starting out in domain name investing.
Things Seem Better Than Reality
Every day you hear of significant domain name sales, sometimes even of names that at first glance do not seem that great. While no one posts or writes about all the names that did not sell on a certain day, that is the norm.
It appears that any point in time there are about 40-50 million domain names actively for sale. Over the past 12 months, NameBio shows about 8660 sales at $1000+ from venues that may be retail (I have excluded the expiring auction venues, and some other sites that are mainly wholesale transactions). In other words, about 24 retail sales per day, on average.
Even if only 5% of all retail sales are reported to NameBio, that would scale to just 480 retail sales per day by everyone combined, including the many unreported sales, compared to the 40-50 million names actively for sale. In other words, the probability that any particular name will sell in the next day is of the order of 1 chance in 100,000. That is for names that represent the average – if as a new investor your names are not up to average, the odds will be lower. Many names will never sell, no matter how long you wait.
Survivorship Bias
Most people you see making sales have survived in this business to get to the point of making regular sales. Unless you are incredibly skilled, innovative, hard working, or fortunate, that is not the reality for most starting out. There is a real survivorship bias – we tend to selectively see only those who have succeeded.
The reality is more like the situation summarized by @Matt Morgan in a 2020 NamePros discussion:
Don’t Quit Your Job
While I understand the sentiment of those who wish to make domain name investment a full-time job, I don’t think it is wise to even consider that as a possibility starting out.
Even with moderately large high-quality portfolios, sales will be unsteady for most. It is too risky to depend early in your domain career on domain sales revenue as a full time income.
Another advantage of not going full time, you are in a better position in negotiations if you don’t depend on regular revenue from domain names.
Some will move into domain investing full time, but you should only think about that possibility after several years of domain sales profitability.
Never Invest Money You Need
You should Never invest in domain names money that you need for living or other expenses. If you already did this, concentrate on getting out of it by finding other jobs or ways to earn money, not by throwing more money at domain investing, hoping that one of the names will sell.
Domain name investing should only be done with a portion of funding that you have available for long-term investing, fully realizing the potential risks and rewards. The questions in the next section highlight some of the risks.
Questions To Ask Before A Domain Acquisition
For those considering investing in domain names, here is a list of questions to ask:
I know how addictive domain name investing can be, and how easy it is to invest in domain names you should have avoided. I have personally done that numerous times.
I find the idea of fences to help control acquisitions helpful. Set and follow limits on how many names, or how much you will spend.
Better yet, link those controls to success, such as: I will stop investing in names until I sell one, and then only use the proceeds from that sale.
Nikul: Build A Reservoir
But what if times are good? Sales are happening, profits coming in, you are flush with cash. That is the time for unbridled expansion and acquisitions, right? Don’t let the opportunity of that cash go to waste, put it to work.
The most valuable thing I saw posted on X this week was by @Nikul Sanghvi of Hypernames on the idea of building a reservoir during the good times, to help you get through the slow times. He kindly gave me permission to share his complete post with you for this article.
Nikul starts off with the volatility that is part of domain name investing:
Find Balance
Finding balance is key in life. Domain investing is no different. Don’t just spend time acquiring domain names. Balance that with spending time increasing the odds existing names will sell.
Also, balance with time spent building skills and learning new things. Become a smarter and better-informed domain name investor.
Also seek overall life balance, in terms of time with friends and family, time on your main job, time to stay fit and healthy, and time to do things that you enjoy.
If It Is So Hard, Why Be In Domain Investing At All?
This is a good question, but it does have several good answers.
I would love to hear your ideas and opinions in the comment section below. A few possibilities:
Update July 29, 2024 The limit for the sales filter at NameBio had been entered as $500 but was converted to $1000, so that value has been corrected in the article.
Special thanks to @Nikul Sanghvi for all that he has contributed at NamePros and to domaining in general, and in particular for the reservoir section of this article.
The main point of this article is in the title: domain name investing is not fast, easy, or sure. It is important to have a realistic outlook if you are starting out in domain name investing.
Things Seem Better Than Reality
Every day you hear of significant domain name sales, sometimes even of names that at first glance do not seem that great. While no one posts or writes about all the names that did not sell on a certain day, that is the norm.
It appears that any point in time there are about 40-50 million domain names actively for sale. Over the past 12 months, NameBio shows about 8660 sales at $1000+ from venues that may be retail (I have excluded the expiring auction venues, and some other sites that are mainly wholesale transactions). In other words, about 24 retail sales per day, on average.
Even if only 5% of all retail sales are reported to NameBio, that would scale to just 480 retail sales per day by everyone combined, including the many unreported sales, compared to the 40-50 million names actively for sale. In other words, the probability that any particular name will sell in the next day is of the order of 1 chance in 100,000. That is for names that represent the average – if as a new investor your names are not up to average, the odds will be lower. Many names will never sell, no matter how long you wait.
Survivorship Bias
Most people you see making sales have survived in this business to get to the point of making regular sales. Unless you are incredibly skilled, innovative, hard working, or fortunate, that is not the reality for most starting out. There is a real survivorship bias – we tend to selectively see only those who have succeeded.
The reality is more like the situation summarized by @Matt Morgan in a 2020 NamePros discussion:
For many domainers it took years to actually see a return or profit from their initial investments. They tried many domain strategies, some worked some didn't and then eventually they made their first sales.
Don’t Quit Your Job
While I understand the sentiment of those who wish to make domain name investment a full-time job, I don’t think it is wise to even consider that as a possibility starting out.
Even with moderately large high-quality portfolios, sales will be unsteady for most. It is too risky to depend early in your domain career on domain sales revenue as a full time income.
Another advantage of not going full time, you are in a better position in negotiations if you don’t depend on regular revenue from domain names.
Some will move into domain investing full time, but you should only think about that possibility after several years of domain sales profitability.
Never Invest Money You Need
You should Never invest in domain names money that you need for living or other expenses. If you already did this, concentrate on getting out of it by finding other jobs or ways to earn money, not by throwing more money at domain investing, hoping that one of the names will sell.
Domain name investing should only be done with a portion of funding that you have available for long-term investing, fully realizing the potential risks and rewards. The questions in the next section highlight some of the risks.
Questions To Ask Before A Domain Acquisition
For those considering investing in domain names, here is a list of questions to ask:
- Is this money I need for living expenses? If yes, don’t even consider this or any domain name acquisition.
- Do I need this name to sell in the next year to be OK? Then save your money, because odds are against that happening.
- Do I clearly understand the probability of this name selling over the first year? If not, read about sell-through rates here.
- Do I have any reservations about this name? Make a list, and fully consider each point.
- Have I tried to convince myself not to acquire this name? If not, pause and do that. Tony @blogspotter wisely reminded his followers on X of that this week.
- Have I done the research on this potential acquisition? There are many articles on the NamePros Blog to help with that, including Process to Rate and Price a Domain Name and Process to Rate a Domain Name Part 2.
- Have I thought about this awhile, or is this an impulse acquisition? Many potential acquisitions look less rosy the next day.
- Do I know who might buy this name? I don’t mean which particular company, but in general is there an established or likely near-future interest in names like this?
- For this acquisition, am I overly influenced by one particular company? Then you should probably not be considering this acquisition, since many such names come with potential legal issues. You don’t need that risk.
- Have I decided how to retail price this name? If not, do that first, see above links on how to analyze and price a domain name. Make sure the price and likely sell-through rate make sense in terms of acquisition and holding costs.
- Am I acquiring this name based on one high-value sale? That is normally not a good strategy. Names sometimes sell for various reasons, often just because one buyer wants that particular name. That does not mean that there are necessarily other similarly motivated buyers.
- Do I really understand this name? While tempting to invest in trends when you see other people making sales, it usually does not turn out well to invest in trends, sectors or niches that you don’t understand at a deep level.
- Can I emotionally handle this name not selling for a long time or ever? How will you feel after paying to acquire this name, and paying renewals for 5 or more years, and still no sale or offers?
- Is this the best way to use this money?
I know how addictive domain name investing can be, and how easy it is to invest in domain names you should have avoided. I have personally done that numerous times.
I find the idea of fences to help control acquisitions helpful. Set and follow limits on how many names, or how much you will spend.
Better yet, link those controls to success, such as: I will stop investing in names until I sell one, and then only use the proceeds from that sale.
Nikul: Build A Reservoir
But what if times are good? Sales are happening, profits coming in, you are flush with cash. That is the time for unbridled expansion and acquisitions, right? Don’t let the opportunity of that cash go to waste, put it to work.
The most valuable thing I saw posted on X this week was by @Nikul Sanghvi of Hypernames on the idea of building a reservoir during the good times, to help you get through the slow times. He kindly gave me permission to share his complete post with you for this article.
Nikul starts off with the volatility that is part of domain name investing:
In the midst of a prolonged drought in sales, you'll often hear/read other investors saying that they are having their best month ever. And when it is raining sales, we feel like a genius – and wonder why others aren't experiencing the same.
Then he goes on to how to respond to this volatility.Here's the truth: the domain game is volatile and random. And this is especially true if you have a small or medium sized portfolio – sales are unpredictable.
So how do you reduce the stress and impact of these dry spells?
You build a reservoir.
When times are good, it will seem like an opportunity cost to have that cash just sitting there, doing nothing. It'll feel like an unnecessary luxury. And when you need it least, it looks like a pointless exercise. You'll be tempted to spend it – but just remember: your reservoir is an insurance against hard times, when cash flow is reduced.
He shared his personal view for a sufficient reservoir.When the drought comes, that capital will protect you and help you sleep at night. You won't need to liquidate domains in a panic to stay afloat, or hastily trim the portfolio to reduce costs.Instead, you'll be able to ride out the heat with a calm mind, maybe adjust a little if you need... and then wait patiently until it rains again.
You can see the original post on X, or follow Hypernames.Everyone's idea of safety is different, but for me, it looks like 6-12 months of renewal fees. And if domain names are your only source of income, I'd aim for 6-12 months of living expenses too.
Find Balance
Finding balance is key in life. Domain investing is no different. Don’t just spend time acquiring domain names. Balance that with spending time increasing the odds existing names will sell.
Also, balance with time spent building skills and learning new things. Become a smarter and better-informed domain name investor.
Also seek overall life balance, in terms of time with friends and family, time on your main job, time to stay fit and healthy, and time to do things that you enjoy.
If It Is So Hard, Why Be In Domain Investing At All?
This is a good question, but it does have several good answers.
- There are numerous individuals who have done very well in domain investing, so success is possible.
- Once you assemble a quality portfolio, it can be a source of supplemental income without a huge amount of ongoing work.
- Perhaps you find the challenges and opportunities of domain investing interesting and something you like doing. Many like chasing down the special names in auctions or closeouts, creating brandable names, research, outbound, or negotiation aspects.
- Another reason is to try your innovative ideas for the industry. While many ideas will not work out, I love reading ideas people bring to NamePros for transforming the industry, or at least trying something new.
- With relatively modest overhead costs, the ability to work anywhere and any time, domain activities can make a good part-time gig for some. It is relatively easy to scale to a level that is right for you personally.
- You may get satisfaction from domaining. For example, I really like to see domain names I helped create, identify, or bring to market availability used in new businesses.
- You enjoy interacting with the people of domains. The global domain name community, including here at NamePros, is a collection of interesting and helpful people. It is a lively and dynamic place.
I would love to hear your ideas and opinions in the comment section below. A few possibilities:
- How do you find balance?
- If you have been in domaining for some time, how long did it take to reach profitability?
- What keeps you in domain investing?
- Do you have an adequate reservoir against lean times? How do you define the right reservoir?
- What one piece of advice do you think is most important for those starting out?
Update July 29, 2024 The limit for the sales filter at NameBio had been entered as $500 but was converted to $1000, so that value has been corrected in the article.
Special thanks to @Nikul Sanghvi for all that he has contributed at NamePros and to domaining in general, and in particular for the reservoir section of this article.
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